Neco Model Questions Vol1 2023 Economics Question 5

Country X imports cloth and exports wheat. The world price of wheat is \$2 per kg and the world price of cloth is \$4 per metre. Domestic demand for wheat is \(Q^{d}_{w}=500-100P_{w}\) and domestic supply of wheat is \(Q^{s}_{w}=400+50P_{w}\). Domestic demand for cloth is \(Q^{d}_{c}=800-150P_{c}\); cloth is imported at the world price. The government imposes a specific tariff of \$0.5 per metre on cloth imports. (a) After the tariff, what is the domestic price of cloth, the quantity imported, and the tariff revenue? (b) Calculate the change in consumer surplus for cloth and the net welfare loss. (c) Determine the percentage change in Country X's terms of trade (export price of wheat divided by import price of cloth) resulting from the tariff.